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Idika Kalu Explodes: Economy on rocky path!

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Dr. Kalu Idika Kalu

Two time Minister of Finance, ex-Minister of National Planning and former Minister of Transportation, Dr. Kalu Idika Kalu, who turned 80 recently has argued that it would be unfortunate if there is any attempt to return Nigeria to state economic control. According to him, it would be counter- productive at this stage.

He pointed out that although there would always be where the government should intervene, it is always better to move out of control, because that’s how to get the economic units to be exposed to the relative values of their markets and their inputs and the services that they have to employ to produce their products. Dr. Kalu also spoke on a number of other issues, including the 2020 budget and on attainment of 80 years of age.

Dr. Kalu spoke, in this interview with Business Hallmark’s Managing Editor UCHE CHRIS and Senior Correspondent Obinna Ezugwu. Excerpts:

At 80, you have been a minister, an ambassador and many other things. You know enough of this country. What it was during your time. You have lived through independence to this period. What is your honest impression of the country? How do you see the future?

I think we all agree, generally, that in spite of all the usual complaints about the effect of colonialism, imperialism and the external power domination of many sectors of the economy; the impression has been growing for a number of years that we would have been better off if we simply made sure that the various measurements of quality of life on attainment of independence were sustained and that every single subsequent step we took would be measured, thought through, fully managed, fully funded, fully accounted for, so that there would be no regression even if there was no significant leap forward.

I think most people agree that, whether in terms of the environment, the economy, social overhead capital: the infrastructure, the roads, the rails, even air services, limited as they were, were better organised. Although you could say we have had improvements in quality, we now have jet planes and all. Population has grown, perhaps too fast for the growth of the economy. Poverty has increased, life expectancy seemed to have improved a little bit, but now falling back, which is a tragedy for a country that had such enormous promise; that has such a wide array of material resources spread almost evenly across the entire landscape.

And on top of that, as we were getting into independence, there was the oil and gas that was expected to be a big boost, provided we utilised the resources properly. It’s always better, when the resources are coming too fast and you haven’t thought through how to utilize them, to save them; to invest them in liquid assets so that when you are ready with your plans, you would be working with a higher volume of financial resources, albeit slightly diminished in real terms. I think this is the general impression. Things are not as good as we all expected.

But having said that, we should not be too discouraged even though the basis for discouragement is certainly there, in terms of deterioration of security, deterioration of per capita consumption of power and other facilities, and certainly the deterioration in education in relative terms and the relatively non-development of social safety net; insurance coverage, employment insurance and other things that help to sustain a society.

We have not done very well in utilising our resources to leverage; to make sure that people who retire, people who are sick and infirm physically or mentally are taken care of. These are the real measures of progress in any society. So, looking back, yes, we have made some progress, but we have retrogressed in a way that nobody would have foreseen, even just ten years ago.

Looking back now, what could we have done different?

Well, it’s not easy to pinpoint one or two things. But as I just said, some of the things that were, if you like, handed to us with the exit of the colonialists: the level playing field; level playing field means so many things. It means where you set a standard to which everybody adheres, irrespective of where you are from, whatever state you are from or which religion or political group you belong. When you make sure the people understand the meaning of adhering to standards, then you will not need to have so much disaggregation of performance all over the country. That’s one area, what was embedded in the merit system that we received from the colonial experience, we should have tried to adhere to it, particularly in the areas of education, health maintenance and research.

With the resources we had, we set up some research institutes. Some of them may be bigger now, we may be spending more, but in terms of quantitative and incremental contribution to development, it’s not clear that we have made the right decisions. And when you make the wrong decisions regarding human capital development, human capital in management, the supervision, the maintenance of law and order, the judicial system, the constitutional structure, government framework… these are all manned by human capital. When that human capital appears to be misguided deliberately, because of political considerations, then it affects everything. You can see that there is hardly any area you cannot say we should have done better.

Some people argue that the British actually set the stage for the skewed structure that we have now. There is the argument, for example, that the people they put in charge were not selected according to the parameters you mentioned?

I’m more inclined to go the other way. Fundamentally, we cannot say that we lost grounds from independence. I went to school here in Lagos, Kings College. We had excellent facilities. You can argue that the political structure we inherited is not better than what we had in our villages and communities. Elders decided things; you didn’t have pockets of dictatorships, in most parts of this country. But at the time we started, you can argue that there was broad-based democracy. We were not talking about vote rigging, vote-buying, impunity in the exercise of power to the extent we are talking now.

So, as are we man enough to blame ourselves or do we continue to look back and blame the British? Are we saying that if we are in the same position, we are sent back as emissaries in our own home lands, we cannot create advantages that will benefit our own home lands? By and large, when you look at other colonies in Southern Africa, South Asia, India and so on, we are worse off. It was said that independence was handed to us on a platter. What I’m trying to say is that part of independence is a certain maturity which should force you to look inwardly rather than always pointing your finger at others. I’m not saying they would not have had their biases; I’m not saying that they would not have made certain decisions about the cultures that they preferred, but I think we should, after nearly 60 years of independence, de-emphasise the idea that things were set up for us to fail.

We have had ample opportunities, we have brilliant people but they are all going out. They are all over the place, even in the British parliament. They are in leadership positions in many parts of the world. These are the same Nigerians. Do we really think that it speaks well of us that we are whining and crying about the fact that they put this man there to rule us? We have had 60 years of voting, and now the voting is more skewed. I may be playing the devil’s advocate a little bit here, but I think one feels justified in saying that we should accept that we have not helped ourselves. Let’s stop putting all the blames on the other side.
Let’s leave that behind and move forward. But to do that, we have to go back to those very principles we had when we got independence. It’s a different thing if we didn’t have those principles, we had them. But then we shed them and had to go back and blame the very people who ‘guided’ us to institutionalising independent judiciary and so on. People were taking exams in different parts of the country and nobody was bothering about who belonged to what group, under the colonial system. Why did we discard it after independence?

The 2020 budget has been presented and what is striking about it is that there is hardly any fund for capital investment which is what drives growth. We have a budget of about N10 trillion, out of which nearly N5 trillion is for recurrent, N2.45 trillion for debt service and just N2.14 trillion for capital investment…?

I don’t even think it’s necessary for me to go into all those fractions. By acts of omissions and commissions, by the time you adjust those nominal values or real values, you find out that those budgets are small relative to the enormous problems that we have. I don’t think the analysis requires you to even be focusing on those little percentages that would be going to debt service, recurrent and capital expenditure. It is clear that our budget is one of the smallest in the world in relative terms. What that really connotes is that our public sectors, and I’m including federal and states and other public agencies, we are not really socially mobilising enough.

When you don’t mobilise enough, your revenues will be small because the base from which you are mobilising is not responding to the need for further development through the public sector. If you are providing schools, hospitals, roads and what have you, it is so much easier to rationalize the basis for higher levels of mobilisation, which will result in higher real and relative values of your budget in relation to your GDP. We have one of the lowest in the world, the bottom five percent. What that shows is that governance is not mobilising the people. Mobilisation here is the freewill of the people. We are not talking about militarising them and forcing them to pay for this and that, that’s not the desired level of mobilisation or the quality of governance that we need. We need the consent of the people.

There is a contract between the government and the people. We give you our taxes because you are going to use the totality of this revenue to give back education, roads, hospitals, transportation and all kinds of services. It is those governments that are able to provide those services that have very high mobilisation; very high budget in relation to their national income. We are at the other end.

Now, the question of how much we spend on recurrent. Ideally, by now, we shouldn’t really be spending more than 60 percent. But as I said, I don’t want to play on percentages. We should not be spending less than 30 or 35 percent on the capital side. The debt should just be a fraction. But that fraction could be much higher than what we have now in real terms, if the growth is as high as it should be. That’s why I said that those percentages are not the issue; it is the real nominal value that will show you whether we are doing well or not. And we are not doing well despite the fact that the percentages already tells you that we must be spending too much on overheads. We are probably spending ridiculously too much, especially on salaries, in relation to income.
And certainly, given the level of social services and the hard infrastructure, we are spending far too little on incremental investment and maintenance. Those are obvious enough; you don’t have to do any in depth analysis to arrive at that conclusion.

How do you mobilise when the growth level is low. The government is already in a cul-de-sac. The revenue is not there to mobilise. And like you said, to build infrastructure and all that, you need revenue but the money is not there to mobilise…?

The cul-de-sac or the anomaly is not for want of resources to mobilise. What we are talking about, which I have said in many different ways, is good governance. We can interpret good governance in any way: Good representation; good performance; popular identity of the needs of the people; putting squarely in relative terms, what should go for jobs performed. If the individual sees that government is doing that, it helps a lot to mobilise them. I’m not talking about money to send tax gatherers. I, for instance, introduced the VAT in 1991 at five percent. It took a while, we almost didn’t make it. There was still a lot of opposition.

People from Ghana came at that time, I was in Abuja, it was my second time as Minister of Finance, and they liked the progress we made nonetheless, to set up 5 percent VAT. That rate should have been three times or close to four times when you look at other developing countries levels. But that level of increment over time should be predicated on the fact of good governance. You can’t wake up one morning and want to raise it, regardless of what the people feel is coming back to meet their needs. That’s what I’m talking about. I’m not talking about muscle, sending more people running around, increasing rate and so on. That’s easy enough, but that has very limited value, because sooner or later, the people will react.

And it’s still going to be more and more costly to do it that way. The best way is good governance. And good governance means diminution of corruption, blocking of wastage, predictability of accountability, transparency… all these things. They have to be evidence in the everyday workings of the government at all levels and the society as a whole. We now hear that these things are padded and all that. When you do that, how do you expect people to be supportive? And when they are not supportive, it limits your ability to mobilise.

Looking at the entire picture now, revenue not being sufficient for our needs, the growing population and all the indices we have. Are you worried about the future of Nigeria?

I think it’s the same question. You can’t be talking about revenue not being sufficient in a vacuum. It has to come from somewhere. You can talk about the efficiency of resource mobilisation: namely that, perhaps because of sustained poor performance, there are sources of revenue you are not capturing, I think this is what is driving the push to raise VAT after 25 years. But all these questions are interrelated. You need to understand how these things work; you need to have people who are managing these things.

And developing countries, by definition, are short of funds, they have great needs, great expectations, so you have to have somebody who can manoevre at any given time, to say given what I have, what is the most I can do? That’s the fundamental decision that you have to take.

You have to look at the aggregate of the macroeconomics and from there you go into the micro levels: tax structure, tariff structure. And the tariff are not just set so that you get more revenue, you also set tariffs so that you encourage domestic production.

And you also don’t want to punish consumers by just imposing tariffs and taxes, and then they get things at three times more than their immediate neighbours – that’s one way to encourage snuggling. All of these have to be looked at in tandem for you to solve the problem.

Some people have said that the key problem we have is that we run this suffocating unitary system that doesn’t encourage productivity. To what extent is the problem structural? Is the call for restructuring timely?

I have been part of the discussions abi nitio, in the various fora. But let me say one thing that perhaps we don’t hear too often. We can’t just be talking restructuring. The problem continues whether we make an explicit decision to do so or not. We have to be looking at the real elements of that. Restructuring is not like you raise VAT. It involves so many other things. As a pragmatic approach, we are not going to be doing ourselves a lot of favours by just waving restructuring. We should, in the meantime, organise things in a step wise manner so that we can solve some of the problems, including improving local leadership, improving the workings of the political parties, improving the involvement of the people in governance… these are all aspects of restructuring that will help the overall issue while we now get to the point of deciding the kind of structure.

Some of us had different views on how we can go about it, which is not surprising. We can’t all have the same ideas. We can’t all say let’s go back to 1963. There are some people who now feel that the kind of relative independence they have had from a much larger unit is desirable. And that may be true. The issue may not be the fact that there is a new system from 1963, but that the leadership is not doing what it should be doing. So, you take that into account. If it’s a matter of leadership, you can say it’s not really a question of the size of these units, whether it is three states or 36 states. We are going back to the whole issue of how we groom leadership. Are you adhering to a merit system? Do you have a system that is free and fair? Do you have a judicial system that adjudicates such that people can’t just do anything?
Proliferate taxes, proliferate functions, increase incomes regardless of the growth of revenue? I mean, where we seem to be featuring so well is that we compare more favourably in terms of salary structure than other countries that are much richer than us; countries that are better organised, growing faster, much less poverty, even with less resources.

There is so much more poverty here. We have such skewed income distribution. Measured statistically, what we call the ‘eugenic coefficient’, ours is so abysmal because we have allowed people who are responsible for making decisions to just make decisions that favour themselves.

Where we have pensioners not being paid; teachers not being paid, workers not being paid and you have people having all sorts of things installed to meet their needs, water tankers, several vehicles and all kinds of huge, obscene allowances! So, yes, fundamentally, I believe that the case for restructuring is made by the fact that the people who are within a constitution have every right at any time to say yes, let’s stop and re-examine the basis of the structure. It is the fundamental right of every constituent member to say we restructure, and for it to be subject of discussion.

When you were in government, you introduced some fundamental changes in the fiscal and economic structure of the country. For instance, removing subsidy from government and managing the foreign exchange regime. But it seems we are going back to where we were before the reforms you initiated. .. it’s like we are going back to state control again?

On the surface of what you are saying, it would be tragic if after some liberalisation – liberalisation is not 100 percent in any country. There would always be where the government will intervene, not the government that is voting for itself all sorts of emoluments and all sorts of things, but one that is representative of the people; that is looking at the distribution of resources in relation to needs, and the availability of funds. It will be tragedy if, in a country of our size, we are moving back to control.
The essence of moving out of control is to get the economic units, from the farmers to the miners, the artisans and so on, to be exposed to the relative values of their markets and their inputs and the services that they have to employ to produce their products. The more you do that, the more efficient the market becomes. But then, the government is there to also mitigate undue advantage by pollution, large size and so on.

Now, the question of subsidy: There are cases for subsidy in the course of growth, to encourage farmers, domestic production and so on, but it’s always measured in relation to the benefits. It should not be harmful to the overall resource needs. The one of subsidy arising from the oil price, it points to the fact that we are not managing the exchange rate properly. If you manage the exchange rate properly, which means that all those prices that flow into the formation of the exchange rate are also amenable to the more or less, liberalised movements. Inputs into the exchange rate have to also follow those market impulses so that by and large, your exchange rate is in line with the border exchange rates, with our neighbours and with our trading partners.

To the extent that you don’t do that; to the extent that there is a divergence, there are some forces that you cannot control. The producer can see the difference and once there is a divergence, the subsidy begins to pile up. When you say you are going to face a particular price as opposed to the indicated market price, if you face a price that has arisen from your control, then subsidies will always continue to arise. During our time, we tried to liberalise, which is what you should do because the economy works better. The Russians, the Chinese, have moved away from where they used to be because they saw the need for liberalisation. They have not liberalised 100 percent, so they still have some problems here and there.
But they are able to manage that problem, so there are no hard and fast rules as to what you should do. That’s why soundness of training, equipping of the managers such that they can glide through the pros and cons, and know how to manage it is important. We can do it for ourselves here. The role of the World Bank or the IMF or the ADB is advisory. We seek credit from them, we are also part of them and we actually also fund them, and they have specialised expertise beyond, perhaps, what you can have in any single country. That may not be true for many of the advanced countries, but by and large, they are advisory. The more you have people who understand what they do, the more you can, together, arrive at the optimal policies for the particular countries. But when you take this combative posture, like whatever they say is against you, it’s a problem.
We are supposed to be part of them; we are represented on their boards. It may be remote in the sense of the smallness of our shares, but we still have avenues to present our position. After 60 years of independence, we should be more comfortable with probing, asking questions, demanding our rights, using our fair share of our cheap resources before we go to more expensive resources. We can’t just be operating in the dark and making accusations based on ignorance.

At 80, an octogenarian, how has your attainment of this age affected your philosophy of life?

I hardly even think of myself as an octogenarian. I thank God that I’m healthy. I am grateful that I still have my senses intact, and one doesn’t need to be helped to go around. It is a special grace that one still has one’s brains sharp enough to comment on national and international issues.